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Checked your latest student loan bill from FedLoan Servicing and saw that it increased a lot?
Read almost any article about what to do with high student loan payments, and you’ll be told to:
- Call your servicer and ask about your repayment options or
- Request a forbearance
I have a problem with both of those things.
First, FedLoan is your student loan servicer. They don’t work for you. They work for the Department of Education. How can you trust them to tell you what’s in your best interest to lower your student loan payment?
Second, forbearance is rarely the right solution. And that’s especially true if you’re a public service worker and you’re trying to get loan forgiveness under the Public Service Loan Forgiveness program.
In this guide, you’ll learn what to do when your FedLoan Servicing payment is too high.
Why Did My FedLoan Payment Increase?
Your FedLoan payment increased for one of these reasons:
- You were moved from an income-driven repayment plan to the Standard repayment plan.
- The income you submitted for recertification was greater than last year.
- You filed a joint tax return.
- Your family size changed.
To find out which of these reasons caused your payment to increase, compare the information you submitted last year versus this year.
#1 Plan Change
Call FedLoan (800-699-2908) and ask the representative these two questions:
- What payment plan am I currently in?
- What payment plan was I in before this plan?
If the payment plans are different, use the Department of Education’s Repayment Estimator to check your repayment options.
Did you use a tax return? Compare your AGI. Did you use a paystub? Compare the annual amount (multiply your gross earnings by 12, 24, or 26 // monthly, twice-monthly, bi-weekly) against the income you used this year.
If there’s a significant difference (more than a few thousand dollars) then your income is the problem.
#3 Filed Jointly
Filing a joint tax return causes your student loan payment to increase because your monthly payment is now based on you and your spouse’s income. This is true no matter what income-driven repayment plan you’re in.
#4 Family Size Changed
Is your total family size smaller than it was last year? Why? Did someone die? Or were they a child that went away to college?
Miscounting family size is the most common mistake student loan borrowers make.
They stop counting their child because the child moved in with the other parent or because the child went away to college.
Under the rules, you can count your child, no matter where they live, so long as you pay at least 51% of their support. Support includes food, housing, insurance, transportation, etc.
Likewise, if you have a roommate, live-in partner, parent, or other adult living with you.
You can count that adult so long as they will live with you more than half of the year and you pay more than 51% of their support.
How Can I lower my FedLoan Payments?
Once you know why your payment increased, submit an income-driven repayment plan request to try and lower it.
On that form, under section 2, question 1, you’ll choose 1 of 3 reasons why you’re submitting it:
- If you need to enter into an income-driven repayment plan, you’ll select the first box, “I want to enter an income-driven plan“
- If you need to switch IDR plans, you’ll select the last box “I want to change to a different income-driven plan“
- And if you need to recalculate your payment to use your tax return or pay stub, you’ll select the third-box, “I am submitting documentation early to have my income-driven payment recalculated immediately“.
Where to Mail Income-Driven Repayment Request form FedLoan
The easiest and most reliable way to submit your income-driven repayment plan request is to upload it to your account at myfedloan.org. But if you want to mail it, you’ll send it to:FedLoan Servicing
PO Box 3661
Harrisburg PA 17105-3661
About a week after you mail it, call FedLoan to make sure they got it and have applied it to your account.
Should I Request a Forbearance?
So you’ve checked your request forms and reran the numbers and realized you still can’t afford the monthly payment, the natural question to ask is, “Should I request a forbearance?”
Yes. If you absolutely cannot afford the payments, then you would want to request a forbearance to avoid late payments and, later, damaging your credit report.
But before you do that, go and set up a time to talk with me so we can make sure a forbearance is your only option.
What Happens if I Don’t Pay FedLoan?
When you miss a federal student loan payment, your loan will go into a delinquency status, but nothing will be reported to the credit reporting bureaus.
When you miss 3 consecutive monthly payments, FedLoan will report your delinquency status on your credit reports.
And when you miss 9 consecutive monthly payments (270 days) your loan will be placed into a default status and your credit report will show 9 months of late payment history.
After you default, FedLoan will send your account to the Department of Education’s Debt Management and Collections Systems to start the process to garnish your wages, take your tax refund, and stop you from getting more federal financial aid.
When Does FedLoan Report Late Payments
FedLoan reports late payments to the credit bureaus once your loan is 90 days past due. Until then, your loan is delinquent, but they haven’t yet reported the late payments to FedLoan. To stop them from doing so, you can either make all the payments you missed or request a deferment or forbearance.
⚠️ BEWARE OF FORBEARANCE
When you request a forbearance, the missed payments and accrued interest will be added to your principal balance through a process called capitalization. Capitalization can cause your loan balance to increase drastically.
Can I Remove a Late Payment for FedLoan Servicing
Short answer: No, you can’t remove a late payment for FedLoan Servicing. Typically, FedLoan will not agree to a “goodwill adjustment” to remove a late payment from your credit report. Because they wait until you’re 90 days past due on your student loans before they report it to the credit bureaus, you’d be asking them to remove 3 late payments. That won’t happen.
The better move, in my opinion, is to hire a professional credit repair professional to see if they can get the late payment removed (or maybe even the whole account ??).
Can I Negotiate a Settlement with FedLoan?
No, you cannot negotiate a student loan settlement with FedLoan. You can only settle a federal student loan if your loan is in default. And if your loan is in default, your loan will be sent to the Department of Education who will send your account to a private collection agency. You will need to contact the collection agency to negotiate a settlement.
Let’s talk if you’re in default and want to settle. I’ve helped many student loan borrowers do the same.